Surprising Surge: US Economy Speeds Past Expectations in Q2

 Surprising Surge: US Economy Speeds Past Expectations in Q2

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US Labor Costs Rise Slightly Below Expectations in Q2, Easing Wage Growth Supports Fed’s Inflation Battle

Labor costs in the United States experienced a moderate increase in the second quarter, with wage growth showing a slight cooling. This development provides some relief to the Federal Reserve in its ongoing fight against inflation.

According to the Labor Department’s report on Friday (July 28), the Employment Cost Index (ECI), which serves as the broadest measure of labor costs, rose by 1.0 per cent in the last quarter. This increase follows a 1.2 per cent advance in the January-March period. Economists surveyed by Reuters had predicted a slightly higher rise of 1.1 per cent for the ECI.

On a year-on-year basis, labor costs went up by 4.5 per cent, showing a decrease compared to the 4.8 per cent surge in the first quarter.

The Employment Cost Index is a widely respected gauge used by policymakers and economists to assess labor market conditions and predict core inflation. It adjusts for changes in composition and job quality, making it a reliable indicator.

In response to the inflationary pressures, the Federal Reserve recently raised its policy rate by 25 basis points, setting it in the 5.25 per cent-5.50 per cent range. This level was last observed just before the 2007 housing market crash and has not consistently been surpassed in about 22 years.

The data indicates that annual wage growth is gradually slowing down, aligning with the easing conditions in the labor market, especially after reaching its peak last year.

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